Business Succession can take many forms
11 February 2022
With the commencement of 2022, business owners have had time to reflect on this past year and the disruption caused by COVID-19. Ongoing challenges with supply chains, logistics, and labour continue to impact most industries. For those fortunate enough to be financially sound or who have decided a change of direction is warranted for 2022, we may see business owners exiting their enterprises.
Understand the options for the business
There are several ways a business succession plan can happen including:
Selling the business outright, also known as an asset sale.
Selling shares in the business, commonly called an equity sale.
The size, complexity, and potential sale value of the business can largely determine the process to be followed. Selling off stock, plant and equipment at fire-sale values can be done relatively quickly, whereas selling the business can take longer. However, businesses owners should engage professional advisers to assist with income tax, GST, commercial law, employment law, and finance.
Whilst not the preferred option, some business owners may even decide to cease trading if there is little prospect in selling the business and realising any value. Interestingly, there have been a few recent examples of this in the Hawke’s Bay media. Long-standing business owners have decided to shut their doors and walk away from their businesses.
What to consider in a business succession plan
As a business owner, you need to understand what value might be realised before selling the business as a whole or even partially. Having a realistic expectation of value avoids disappointment if lower offers are received.
Here are a few important issues to consider before commencing a sale process:
The cash remaining after all debts have been paid
How this impacts the owner and their family
Where and how the proceeds get invested
Information provided to prospective business owners to enable them to assess the opportunity should be carefully managed. While this phase can be cumbersome and time consuming, providing sufficient due diligence information and analysis can streamline a deal.
Remember, during this process that it is business as usual for owners, which is another good reason to consider engaging a professional to help run the process. Whilst you will pay for their services, they can add significant value and save you some angst. This same principal applies for anyone looking to buy shares of a business or a business in its entirety.